Can The T-Mobile – Sprint Combination Challenge Cable Operators?

by Trefis Team
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T-Mobile (NASDAQ:TMUS) could bet big on the “fixed 5G” space, after it closes its planned merger with Sprint (NYSE:S), leveraging 5G wireless technology to compete head-on with cable-based broadband and pay TV services. While the duo could have some advantages in this market, competition would also be intense, as larger rivals Verizon and AT&T are likely to have a head start in the market for fixed 5G services. In this note, we take a look at why the carrier may be looking to enter this market, and what it could mean going forward. We have also created interactive dashboards that outline our valuation estimates and forecasts for Sprint and T-Mobile.

Why The Broadband Market Looks Attractive To Carriers

While the U.S. broadband market has only been growing at a modest pace, with the subscriber base of major broadband players rising by about 800k over Q1 2018, entering the broadband market could prove positive for T-Mobile. For instance, the carrier would be able to offer bundled services, while limiting churn for its wireless services. Moreover, the residential broadband market sees very low competition currently, with 53% of broadband customers reportedly having only one choice of broadband provider. While cable companies have made significant headway in the broadband market compared to telecom companies, leveraging their wider reach and their faster fiber-optic-based services, it’s possible that the 5G-based services deployed by wireless carriers could give cable companies a run for their money. As carriers are likely to eventually deploy 5G networks nationwide with speeds exceeding current residential broadband connections, they could leverage this infrastructure with only incrementally higher capital investments for “fixed 5G”.

T-Mobile’s Spectrum Position Could Offer Some Advantages

Spectrum will play a key role in the rollout of these services. If T-Mobile and Sprint are able to close their merger (which could face regulatory headwinds)  the combined entity will have both T-Mobile’s recently acquired 600 MHz spectrum as well as Sprint’s deep portfolio of 2.5 GHz resources for 5G deployment. This is in contrast with other carriers, who intend to roll out services primarily on high-frequency 28 GHz range millimeter spectrum and mid-band 3.5 to 3.9 GHz range. Considering the spectrum characteristics, it’s possible that the service offered by T-Mobile will offer lower peak speeds compared to rivals, but potentially offer better coverage, reaching more underserved areas in the broadband market.  That said, the technical viability and cost of providing the services at scale might still need to be figured out, and equipment providers may also need to build equipment specific to the carrier’s roll-out. In addition to potential advantages with its coverage, T-Mobile’s brand image as an industry disruptor in the wireless space could prove valuable in the relatively conservative broadband market. The carrier has proven adept at packaging its offerings in ways that appeal to customers, and it’s possible that it could do the same in the broadband space.

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